Mental Accounting in Portfolio Choice: Evidence from a Flypaper EffectJames J. Choi, David Laibson, Brigitte C. Madrian
NBER Working Paper No. 13656 Consistent with mental accounting, we document that investors sometimes choose the asset allocation for one account without considering the asset allocation of their other accounts. The setting is a firm that changed its 401(k) matching rules. Initially, 401(k) enrollees chose the allocation of their own contributions, but the firm chose the match allocation. These enrollees ignored the match allocation when choosing their own-contribution allocation. In the second regime, enrollees simultaneously selected both accounts’ allocations, leading them to mentally integrate the two. Own-contribution allocations before the rule change equal the combined own- and match-contribution allocations afterwards, whereas combined allocations differ sharply across regimes. The NBER Bulletin on Aging and Health provides summaries of publications like this.
You can sign up to receive the NBER Bulletin on Aging and Health by email. Published: James J. Choi & David Laibson & Brigitte C. Madrian, 2009. "Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect," American Economic Review, American Economic Association, vol. 99(5), pages 2085-95, December. This paper is available as PDF (136 K) or via email.
This paper was revised on September 16, 2009 |

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